Bursa launches new ETFs and options contract

Kenanga introduces 2 L&I ETFs with the aim to drive trading volumes


BURSA Malaysia Bhd has added FTSE Bursa Malaysia (FBM) KLCI-based leveraged and inverse (L&I) exchange-traded funds (ETFs) and options on the US dollar-denominated palm oil futures contract to its product offerings with the aim to drive trading volumes.

Kenanga Investors Bhd, the asset management arm of Kenanga Investment Bank Bhd, listed OneETF on the Main Market which offers Kenanga KLCI Daily 2X leveraged ETF (KLCI2XL) and Kenanga Daily -1X inverse ETF (KLCI1XI).

Kenanga Investment Bank group MD Datuk Chay Wai Leong said its two L&I ETFs adopt a futures-based replication investment strategy in order to provide daily performance that closely corresponds to their respective tracked indexes.

“We are pleased to introduce OneETF which provides investors with a low-cost alternative to diversify and hedge their portfolios and become a mainstream investment option,” he said.

Kenanga Investors ED and CEO Ismitz Matthew de Alwis said the inverse KLCI ETFs can help investors hedge downside risk, while leveraged ETFs enable those with a bullish view of the market to possibly maximise potential returns.

“Investors will be able to cushion the sharp shifts that may occur as our OneETF is traded on a realtime basis — this is especially significant for institutional investors due to their large exposure,” he said.

Technically, the KLCI2XL aims to achieve a return of two times the underlying benchmark via futures as margin contracts and money market instruments among others, while the KLCI1XI uses short selling, derivatives trading and other leveraged investment techniques to perform inversely to the FBM KLCI Daily Short (Price) Index.

Investors will be able to increase their yield without having to scrutinise the fundamentals of the underlying index components which is a form of passive management, Kenanga stated in a release yesterday.

“We want our retail and institutional investors to capture market opportunities in a volatile environment,” added de Alwis.

The exchange hopes these new products will give investors the opportunity to undertake directional trades and potentially help invigorate the local ETF market by becoming the main driver of ETF market activity.

Bursa Malaysia Bhd’s CEO Datuk Muhamad Umar Swift said as passive investment gains popularity with investors, ETFs — being a low-cost passive investment product — have attracted interest from individual and institutional investors.

“The introduction of L&I ETFs, particularly the inaugural FBM KLCI-based ETFs, will invigorate our local bourse by offering investors a wider range of innovative products catering to varying risk appetites,” he said at the listing of Kenanga Investors’ ETFs in Kuala Lumpur yesterday.

Muhamad Umar expects a sustained development of the ETF market through education and creation of attractive and diverse investment opportunities that meet the evolving needs of retail and institutional investors.

He said revisions were made to the ETF guidelines and framework last year to support the development of new ETF products and encourage the growth of ETFs.

“We believe as Malaysians become savvier investors, they will use such products as a viable choice to diversify their portfolio and income,” Muhamad Umar said.

Yesterday’s listing brings the number of L&I ETFs on Bursa Malaysia to six, and the total number of ETFs to 18.

Bursa Malaysia also hopes the options contract on US dollar denominated refined, bleached and deodorised (RBD) options on palm olein futures (OPOL) will complement the existing RBD futures contract and broaden the risk management tools available for palm oil players.

The new contract will expand Bursa Malaysia Derivatives Bhd’s (BMD) product offerings under the palm oil complex.

To help drive trading in the new contract, market participants will be entitled to exchange fee and clearing fee waiver on OPOL transactions till the end of June, the exchange stated in a release yesterday.

“In response to market demand for an options contract, we are pleased to enhance the current FPOL (palm olein futures contract) by making OPOL available to the marketplace. The OPOL contract allows for the introduction of more sophisticated strategies to raise the level of derivatives trading and will attract new categories of market participants such as commercial banks and options writers and traders,” said Muhamad Umar, who is chairman of BMD.

He added that the debut of this first such contract underlines the exchange’s commitment to strengthen Malaysia’s position as the centre for palm oil price discovery and the global premier palm oil market.

The exchange noted the OPOL contract provides palm oil refiners, end-users of palm olein and foreign palm olein importers a mechanism for transparent price discovery, regulated trading and hedging against adverse palm oil price movements. For traders, OPOL is an additional instrument that can be utilised by local and international participants to trade.

RBD palm olein is a major component in the palm oil value chain. Malaysia produces 10.7 million tonnes of RBD palm olein, 75% of which is for export.